What Bear Market? Japan Stocks Are Surging Again After Big Fall

Don’t look now, but Japanese stocks are marching higher and appear to be heading toward a technical bull market just weeks after falling into a technical bear market.

After plunging over 20% from their May 22 closing peak to their June 13 closing low, the Nikkei Stock Average has now reclaimed 15% of the lost ground, and is looking increasingly resilient to selloffs in other Asian stock markets.

Another 6.6% rise would, by definition, put the index quickly into another bull market.

Analysts note that the recovery has been aided by a stronger U.S. dollar, greater faith in the U.S. economic revival, and an increasing belief in the reflationary economic theme that the Japanese government is trying to hammer home.

A persistently stronger U.S. dollar has been the most consistent element of the rebound. Above-view U.S. jobs data released on Friday was the latest catalyst, pushing the dollar through the Y101 mark–a very positive sign for exporters who repatriate profits from dollars into yen.

“The market wants to go up, as even poor overseas data has been met with aggressive buying over the last few weeks,” says Kenichi Hirano, market advisor at Tachibana Securities. “Domestic individual investor trading has really stood out as foreign investors have not been as active as they were in the six-months through late May. As a group, they’re very bullish — and they number around 40% of the market now.”

Traders note that stocks are technically overbought, as the Nikkei now sits about 6% above its 25-day moving average. Just before the market convulsed in a series of setbacks beginning on May 23, the Nikkei peaked at about 10% over the same moving average line–a definite warning sign.

Real estate developers and banks — two sectors that are seen as direct beneficiaries of ‘Abenomics’ (asset inflation and an increasing propensity to borrow and buy) — are among the most admirable comeback stories. The two Topix subindexes are down only about 4% each from their May peaks.

“I actually thought the market would sell off down to about the 11,000 level (after peaking near 16,000),” says Kazumasa Yamamoto, a professional day trader based in Tokyo. “But when the dollar bottomed, I figured it would be a good chance to get back in the market. Turns out I was mostly right. It really doesn’t feel like a bear market at all.”